I didn’t want to let this news item slip away without comment because it has some serious implications for the GaAs epitaxial wafer market. On January 10 2013, IQE announced they agreed to acquire the compound semiconductor epiwafer manufacturing business of Kopin Corporation for total consideration of $75 million in cash. This follows up on the announcement earlier in the 2012 that IQE had signed what they describe as a “multi-faceted agreement” to acquire the entire in-house MBE epiwafer manufacturing unit of RFMD. In exchange for the transfer of these assets, there will be no upfront cash outlay. Instead, the two companies have agreed to a seven-year wafer supply agreement, with a minimum purchase commitment of $55 million over the first two years. This agreement will result in IQE being the exclusive supplier of all of RFMD’s MBE wafer requirements and a majority of its MOCVD wafer requirements under a discounted pricing arrangement.

In our last Forecast and Outlook Report: Markets for Semi-Insulating GaAs Epitaxial Substrates: 2011 - 2016, I concluded that IQE was the dominant merchant vendor of MBE epitaxial substrates with almost 85% of the market and the largest overall merchant supplier by virtue of their ability to supply both MBE and MOCVD substrates. My analysis ranked RFMD as the fourth largest and Kopin as the third largest overall suppliers of epitaxial substrates. With the acquisitions, IQE is poised to be the dominant epitaxial wafer manufacturer with more than 50% of the entire market. Their dominance in the MBE market is enhanced by RFMD’s capability and the Kopin acquisition roughly triples their MOCVD capability. This allows IQE to vault from a distant third in this segment past VPEC into first place. The enhanced MOCVD capability enables them to get a firm foothold in the growing handset PA market through the wafer supply agreement with RFMD and the customer relationship Kopin had with Skyworks.

It appears clear that IQE will have a stranglehold on the epiwafer segment. Based on 2011 results, they will be almost three times as large as VPEC, their closest competitor. The deals make perfect sense for IQE; they extend their dominance in the MBE segment and gain a much-needed boost in the MOCVD segment, along with relationships to RFMD and Skyworks. From the RFMD perspective, most if not all of their handset switches have transitioned to SoI as the technology of choice, making it difficult to keep the 16 operational MBE tools they are transferring to IQE busy. While Kopin has been a very strong competitor in the III-V epitaxial wafer market segment, they have obviously chosen to cast their lot with the display technology they have been developing and with that focus, the epiwafer portion of their business no longer fit the company’s direction.

These announcements, coupled with an earlier announcement of an exclusive supply contract and strategic investment in CPV module manufacturer, Solar Junction Corporation was a very loud statement of IQE’s intention to consolidate the epiwafer space and diversify end markets. The challenge in acquisitions is always the successful integration of the new parts, but barring any missteps in that area, IQE looks poised to be the dominant epitaxial wafer supplier. It will be interesting to see how these acquisitions change the epitaxial wafer landscape, so stay tuned for more insights and forecasts in the upcoming months.

-Eric

I’ve reported that the GaAs device market growth slowed considerably in the second half of 2011 (2011 GaAs Device Revenue Falters after Strong Start), dropping the overall revenue increase in the GaAs device market to 6%. This was well below 2010’s 35% growth, but is right in line with the historical growth rate of the market. Despite the market returning to historical averages, some companies did significantly better than the market. The Strategy Analytics GaAs and Compound Semiconductor Technologies Service (GaAs) Insight, “Skyworks Remains the Largest GaAs Device Manufacturer,” explores 2011 GaAs device revenue results and growth trends, as well as revenue performance of leading device manufacturers, like RFMD, Skyworks, TriQuint Semiconductor, Avago Technologies, Renesas Electronics, Hittite and WIN Semiconductors.

The two companies in our top ten GaAs device manufacturers that showed the fastest growth in 2011 also illustrated two of the most important trends in the GaAs device industry in 2011: diversification and outsourcing. Skyworks Solutions, the largest GaAs device manufacturer had a stellar year in 2011, reporting revenue increases of 27%. This growth, well in excess of the market appears to be a testimonial to Skyworks’ efforts at diversifying their smartphone customers, products, technology and market applications. Skyworks is widening their lead over rivals TriQuint, RFMD and Avago Technologies.

The second company showing much stronger revenue growth than the GaAs device market in 2011 was WIN Semiconductors. WIN checked in with revenue nearly 37% higher in 2011! The growth at WIN Semiconductors reflects their commitment to expansion and it illustrates an increasing desire by GaAs device manufacturers to outsource their foundry operations. Companies with foundries, as well as start-ups are looking closely at the “fab-less” or “fab-lite” outsourced business model as a method to increase the range of process technologies that can be offered and provide a capacity buffer without the need for large levels of capital investment. WIN has taken advantage of this trend to easily become the GaAs device industry’s largest pure-play GaAs foundry.

Eric

For Current Clients to Read More:

The latest Strategy Analytics GaAs and Compound Semiconductor Technologies Service (GaAs) viewpoint, “Compound Semiconductor Industry Review October-December 2011: Microelectronics,” captures product, technology, contract and financial announcements for companies such as RFMD, Skyworks Solutions, Fujitsu, ANADIGICS, Agilent, Hittite Microwave, TriQuint Semiconductor, Avago, NXP Semiconductors, Microsemi, Renesas Electronics, Freescale, Broadcom Cree and Murata Manufacturing. These announcements address a variety of commercial and military applications that use gallium arsenide (GaAs), gallium nitride (GaN), Silicon carbide (SiC), silicon germanium (SiGe) and complementary metal-oxide-semiconductor (CMOS) technologies.

On the financial side, results were generally positive with most of the semiconductor companies reporting sequential quarterly revenue increases. The biggest exceptions were silicon device companies Freescale and Microsemi and GaAs device manufacturer TriQuint. The third calendar quarter is typically the largest revenue quarter for semiconductor companies as their customers ramp production of consumer devices in preparation for the holiday season. Based on this quarter, the three largest GaAs device manufacturers, Skyworks, RFMD and TriQuint all appear to be on different trajectories. Skyworks closed their fiscal year with a 32% increase in revenue. With the timing of their year-end, this is a bit deceiving because it captures the last quarter of 2010, which was a very good year for GaAs. However, this much is clear: Skyworks is consolidating their postion as the largest compound semiconductor device manufacturer. RFMD, after seeing year-over-year revenue drop by about 20% in the first half of 2011 finally saw a revenue increase in the third quarter. After exiting 2010 with strong revenue growth, TriQuint maintained enough growth to surpass RFMD's revenue in th first half of 2011. They have been unable to maintain this growth and closed 2011 just below RFMD.

Even though the compound semiconductor industry growth rate is slowing from previous levels, product and process development is continuing, particularly with Gallium Nitride (GaN). As products using GaN technology continue to gain acceptance in military and commercial applications, development activities at microelectronics companies are accelerating. GaN-based products have demonstrated performance advantages for military systems for some time and they are finally beginning to see acceptance in commercial applications, such as CATV and wireless infrastructure. As these application areas broaden, the industry is responding by increasing their efforts to develop new products, processes and partnerships. Recent announcements indicate growing interest in GaN-on-silicon processing to reduce cost and higher voltage GaN processes to improve power handling performance. Nitronex was particularly active in this area, announcing a multi-stage GaN device with interstage matching, a new 48V GaN-on-silicon process and qualification of the GCS foundry for production of Nitronex's existing GaN processes. In addition, RFMD expanded their line of GaN CATV amplifiers, Mitsubishi Electric anounced two C-band amplifiers for earth station satellite applications and UMS announced their first GaN transistor, targeting a variety of applications.

Eric

For clients to read more:

Consumer demand for new services, the global digital transition, new technologies and a recovering economy are driving strong growth in CATV network infrastructure. No longer used strictly for video, CATV network infrastructure has become the backbone for the "triple-play" of voice, video and data services offered by cable and telephone service providers. Strategy Analytics forecasts the market for MMIC and hybrid amplifiers in CATV infrastructure will grow at a 10% CAAGR to reach $227 million in 2014. We believe performance and cost benefits will continue to make GaAs-based amplifiers attractive and this technology will grow at twice the market rate. The use of GaAs in lower power MMIC and high power "hybrid equivalent" applications will erode silicon market share.  We forecast GaAs hybrid and MMIC amplifiers will account for revenue of more than $160 million by 2014. As fiber moves deeper into the traditional hybrid fiber coax (HFC) network, more component companies are investigating the performance advantages GaN amplifiers can provide. We have forecast that GaN amplifiers will enter the market in 2010 and this is being borne out by recent product announcements from companies like RFMD. We believe this market will grow rapidly to reach nearly $18 million in 2014. Clients can access the latest reports and data models outlining these forecasts: CATV Infrastruture Amplifier Market: 2009 - 2014 CATV Infrastructure Amplifier Market (Data Table)

The slowdown in the GaAs industry supply chain extended through to the first half of 2009, but a robust recovery in the second half resulted in SI GaAs substrates volumes, both bulk and epi, still growing year-on-year. Orders started to filter through in the second quarter of 2009 as end-users looked to re-build stock levels and  Strategy Analytics models show that by the end of the second quarter, the market had started to see robust demand for materials and devices through the whole GaAs industry supply chain.  While we continue to see silicon technologies encroaching further into traditional markets for GaAs, we didn’t see any major paradigm shift in the architectural makeup of cellular terminals during the slowdown.GaAs-based power amplifiers and switches continued to be the incumbent technology in the RF (radio frequency) front-end. This is especially true for the next generation of phones, where our previously forecasted trends of multi-mode and multi-band operation are especially relevant.   Significantly, not only will GaAs technology be central to supporting the fastest growing “smartphone” category of cellular handsets, but there is also an increase in the ratio of PAs per terminal as well as more complex switching requirements. This will drive up demand for HBT and pHEMT devices and the subsequent demand for epitaxial and bulk GaAs substrates.  Augmenting this demand from cellular handsets will be the uptake of wireless broadband based on cellular radio technology implemented in notebook computers, USB dongles as well as other platforms including M2M and energy monitoring markets. Adding to this demand will be increasing functionality such as Wi-Fi and GPS being incorporated into handsets, which provides additional opportunities for GaAs technology.  Strategy Analytics’ studies are projecting five-year compound annual average growth rates of up to 12%, translating into volumes growing by as much as 160% through 2014. Clients can access the latest reports and data models outlining these forecasts,

• Semi-insulating GaAs Substrate Markets: 2009-2014
• Markets for SI GaAs Substrates: 2009-2014 (data table)
• Markets for SI GaAs Epitaxial Substrates: 2009-2014
• GaAs Epitaxial Substrates 2009-2014 (data table)

With the industry currently facing a feeding frenzy as demand for smartphones continues to outstrip the rest of the cellular handset market, are these growth projections too low? Let us know what you think.

Dr David Allstot from the University of Washington kick-started the 2010 IEEE Radio Frequency Integrated Circuits Symposium with a review of the challenges and ongoing research into CMOS power amplifiers for use in the cellular radio front-end. Highlighting the energy consumption and CO₂ emissions from cellular handset usage, Dr Allstot emphasized the need for more efficient PAs as continued motivation for development of CMOS PA technologies.  Research into CMOS PAs has been ongoing for around 20 years, with current designs achieveing around 1W power outputs and up to 60% PAE. The performance of typical power amplifier PAs including Class A, B and E were highlighted, and then put into context with the demands of current networks which place greater importance on PAs operating backed off from peak power with schemes such as 64QAM resulting in probability distributions that translate into actual efficiencies of only 5%.  Dr Allstot provided examples of digital PAs comprising multiple PA cells and power combining techniques that have been put forward to address these issues, and highlighted the potential for Class G power PAs that feature a hump-shaped curve with the first peak aligning with probability distribution curves of a 64QAM spectral signal and offering the potential for efficiencies as high as 24%.  While these results are promising, Strategy Analytics still sees a gap in performance capabilities between GaAs and CMOS PAs which is compounded by cellular handset requirements continuing to evolve. This translates into a moving target that places greater emphasis on linearity, efficiencies and peak-to-average ratios (PAR) and in our opinion will continue to favour the capabilities offered by compound semiconductor technologies.  Nevertheless, the pervasive nature of RF technology will open up doors for CMOS and SiGe PAs, while also continuing to provide growth the compound semiconductor technologies, and this was highlighted by the second plenary talk, given by Gregory Waters of Skyworks Solutions Inc.  Mr Waters provided an overview of how the growth in the cellular handset market has transformed the RF industry into a mainstream technology with future trends pointing to greater pervasive use of RF in multiple applications. Smartphones are leading the initial trends towards more complexity in the radio chain which translates into greater content and provides continued growth for the industry.  Video is the primary driver for the RF market moving forwards with social media driving demands for always-on connectivity. This in turn will translate into more RF content going into terminals to meet these needs. Skyworks estimated that average RF content has increased by around 2.5 to 4x the content required when delivering voice-only capabilities.  The different approaches in the cellular front-end to handle these growing needs were highlighted, from multiple PAs through broadband PAs able to tackle high-band and low-band RF chains, to solutions that will cover all bands through a converged solution. This will be coupled with techniques such as envelope tracking and digital predistortion to provide more linear, more efficient RF solutions.  The other key message from Skyworks was that RF technology will become even more pervasive in its application moving forwards, with embedded RF translating to multiple applications, examples including smart metering for utilities, vending machines and passive RF technology for tracking applications.  To serve market needs moving forwards, RF companies will need to continue developing a broad base of technologies that incorporate not only the RF, but also interconnects and packaging   Strategy Analytics sees this pervasiveness as a catalyst that will open doors for Si technologies while the growing complexity needed to serve the always-on connectivity will present continued opportunities for compound semiconductor technologies.